The PIMCO RAE Fundamental Emerging Markets Fund Is A Standout In The Emerging Market Class

| About: PIMCO RAE (PEIFX)

Summary

The PIMCO Rae Fundamental Emerging Markets Fund Inst is 2nd in the Diversified Emerging Markets Category with a 15.05% YTD Return.

The fund has a favorable portfolio weight advantage in the energy sector as well as a favorable weight advantage in Emerging Europe and a favorable deficit in Emerging Asia.

The fund has a dual advantage in terms of having a superior upside capture ratio as well as an expense ratio that is much more affordable than its benchmarks.

The PIMCO RAE Fundamental Emerging Markets Fund Inst (MUTF:PEIFX) is 2 nd in the Diversified Emerging Markets Category with a 15.05% YTD Return. On the other hand, the MSCI ACWI Ex USA NR USD has a -2.24% YTD Return while the Diversified Emerging Markets Category has a 5.20% YTD Return.

In terms of market capitalization, there isn't really any significant differences between the fund's market capitalization statistics and their benchmarks. However, the fund has a slight deficit in terms of giant-cap portfolio weightings. This can be seen in the chart below:

Size

% of Portfolio

Benchmark

Category Avg.

Giant

55.13

59.03

59.22

Large

30.10

31.38

21.34

Medium

12.91

9.39

15.56

Small

1.73

0.19

3.81

Micro

0.13

0.00

0.07

Click to enlarge

In terms of sector weightings, the fund is positioned very well. This can be seen in the fund's portfolio weight deficit in the consumer cyclical (discretionary) sector. As you can see below, the fund has a deficit of nearly 10% versus its benchmarks. The consumer discretionary sector is the second worst performer among foreign and global sector ETFS. The iShares Global Consumer Discretionary ETF (NYSEARCA:RXI) has a -4.3% YTD Return while the SPDR S&P International Consumer Discretionary Sector ETF (NYSEARCA:IPD) has a -9.4% YTD Return. Here is the chart below:

Sector

PEIFX Portfolio

Benchmark

Category Average

Consumer Cyclical

2.27

10.83

12.04

Click to enlarge

The fund has a very favorable portfolio weight advantage of over 10% in the energy sector. The energy sector is the best performing sector among foreign and global sector ETFS. The iShares Global Energy ETF (NYSEARCA:IXC) has a 14.9% YTD Return while the SPDR S&P International Energy Sector ETF (NYSEARCA:IPW) has a similar YTD Return of 14.9%. Here is the chart below:

Sector

PEIFX Portfolio

Benchmark

Category Average

Energy

19.23

6.87

5.40

Click to enlarge

The energy sector is well-represented in terms of the top 25 weighted holdings in a fund with over 270 holdings in it. Six energy holdings can be seen on this list and most of their YTD Returns are in double-digit territory. This can be seen below:

Energy Sector Holding

Portfolio Weight

YTD Return

Gazprom PJSC ADR (OTCQX:GZPFY)

3.06%

17.78

PJSC Lukoil ADR (OTC:LUKFY)

2.74%

34.57

Surgutneftegas OJSC ADR

2.13%

8.50

China Petroleum & Chemical Corp H Shares (OTCPK:SNPMF)

1.31%

16.90

CNOOC Ltd (OTCPK:CEOHF)

1.28%

20.69

Petroleo Brasileiro SA Petrobras ADR (NYSE:PBR)

1.18%

65.58

Click to enlarge

In addition, the basic materials sector has made an impact on the portfolio in terms of YTD Return. In terms of foreign and global sector ETF performance, the iShares Global Materials ETF (NYSEARCA:MXI) is in the middle of the pack in terms of foreign sector performance with an 8.5% YTD Return. On the other hand, the SPDR S&P International Materials Sector ETF (NYSEARCA:IRV) is second in terms of global sector ETF performance with a 6.8% YTD Return. Here is the fund's basic materials holding advantage versus its benchmarks.

Sector

PEIFX Portfolio

Benchmark

Category Average

Basic Materials

10.88

7.42

5.97

Click to enlarge

In terms of the fund's top 25 basic materials holdings, 20 basic materials holdings have a positive YTD Return. Some of the returns are astronomical. Here are the results below:

Basic Materials Holdings

YTD Return

Portfolio Weight

Vale S.A. ADR Class A (NYSE:VALE)

2.16%

48.63%

Gold Fields Ltd ADR (OTC:GFIOF)

1.21%

93.25%

Mining and Metallurgical Company NORILSK NICKEL PJSC ADR

1.08%

9.58%

Anglogold Ashanti Ltd ADR (OTC:AULDF)

1.00%

181.69%

Companhia Siderurgica Nacional ADR (NYSE:SID)

0.91%

162.32%

Sibanye Gold Ltd (NYSE:SBGL)

0.79%

148.36%

POSCO (NYSE:PKX)

0.54%

20.42%

Gerdau S.A. ADR (NYSE:GGB)

0.46%

46.67%

Impala Platinum Holdings Ltd (OTC:IMPUF)

0.27%

105.87%

Taiwan Cement Corp (OTC:TGBMF)

0.13%

24.91%

Exxaro Resources Ltd (OTC:EXXAF)

0.12%

61.15

LG Chem Ltd (OTC:LGCLF)

0.12%

-24.66

Vedanta Resources PLC (OTCPK:VDNRF)

0.11%

73.62

Southern Copper Corp (NYSE:SCCO)

0.08%

-2.87

Fibria Celulose SA ADR (NYSE:FBR)

0.08%

-46.70

Fresnillo PLC (OTCPK:FNLPF)

0.07%

170.95

EVRAZ PLC (OTC:EVRZF)

0.06%

88.94

Formosa Chemicals & Fibre Corp

0.05%

9.86

Suzano Papel E Celulose SA (OTCPK:SUZBY)

0.04%

0.00

Lonmin PLC (OTC:LNMIF)

0.04%

183.23

Usinas Siderurgicas de Minas Gerais,S.A. Pfd Shs -A- (OTCPK:USNZY)

0.03%

30.32

Hanwha Chemical Corp (OTC:HNWFF)

0.03%

-13.24

Yanzhou Coal Mining Co Ltd H (NYSE:YZC)

0.02%

39.00

Jiangxi Copper Co Ltd H Shares (OTC:JIAXF)

0.02%

-0.98

CITIC Ltd (CITIC)

0.01%

-17.78

Click to enlarge

Additionally, the fund has very favorable weightings on a regional basis. The fund has a favorable portfolio weighting deficit in the meager-performing Emerging Asia Region. This can be seen in the SPDR S&P Emerging Asia Pacific ETF (NYSEARCA:GMF), which has a 1.3% YTD Return. The fund's favorable deficit in the Emerging Asia region can be seen below:

Emerging Market Region

PEIFX Portfolio

Benchmark

Category Average

Asia Emerging

28.56

43.60

40.03

Click to enlarge

In addition, the fund has a portfolio weight advantage of more than 10% in the Emerging Europe region. The SPDR S&P Emerging Europe ETF (NYSEARCA:GUR) has a 10.1% YTD Return for the year. Here is the fund's favorable advantage below:

Emerging Market Region

PEIFX Portfolio

Benchmark

Category Average

Europe Emerging

18.57

6.45

8.41

Click to enlarge

Also, the fund's superior upside capture ratio is another plus. The fund has an advantage over its benchmark in terms of outperformance during market upticks. Here is the graph below:

Click to enlarge

The icing on the cake for this fund is that it is quite cheap. As of the fund's latest prospectus on 1/15/16, the fund has a 0.75% expense ratio. In the graph below, you can see that the fund is nearly half of the expense ratio of the Morningstar Category Average. The graph can be seen below:

Click to enlarge

CONCLUSION

There is no question that this fund is worth the investment. The fund benefits from a lack of foreign and global exposure to the consumer cyclical sector. On the other hand, the fund's strong performance from weighty energy holdings has made the fund's portfolio weight advantage in the energy sector even more advantageous.

Additionally, the fund benefits from its portfolio weight advantage in Emerging Europe and a portfolio weight deficit in the Emerging Asia region. Finally, the fund has the dual advantage in terms of outperforming its benchmark in upward markets while having a significant advantage in affordability via the expense ratio.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.